WEBVTT - Stock Buying Opportunity Isn't Here Yet: Hugh Johnson 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Wicks. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.320 at Bloomberg dot com. Well, in days like today, when 0:00:21.360 --> 0:00:23.760 you have a big sell off in the equity markets, 0:00:23.880 --> 0:00:26.880 it's good to speak to a season grizzled veteran, and 0:00:26.920 --> 0:00:29.560 we have that in Hugh Johnson, Chairman and chief investment 0:00:29.600 --> 0:00:32.360 officer of Hugh Johnson Associates with about a billion and 0:00:32.360 --> 0:00:35.080 a half dollars under management. Hugh, it's great to chat 0:00:35.120 --> 0:00:38.080 with you today. Help us just to put what we're 0:00:38.080 --> 0:00:41.720 seeing today on the tape into some context for us. Well, 0:00:41.760 --> 0:00:45.120 first of all, nobody knows, including myself, what's going to 0:00:45.200 --> 0:00:48.680 be the outcome out comfort the economy of China, the 0:00:48.720 --> 0:00:51.440 economy of the US, and of course the financial markets. 0:00:51.440 --> 0:00:55.360 We have some things that can reasonably serve as as 0:00:55.400 --> 0:00:57.960 a guide. We of course had the stars epidemic or 0:00:58.040 --> 0:01:00.520 problem that we had in two thousands three. In two 0:01:00.600 --> 0:01:03.000 thousand fourteen, we had a bowl of notes. We've had 0:01:03.040 --> 0:01:06.200 this kind of thing before, and it's told us to 0:01:06.440 --> 0:01:09.320 kind of, you know, don't get caught up in the panic. 0:01:09.440 --> 0:01:12.360 I think that's always a mistake. So I think, don't 0:01:12.400 --> 0:01:14.960 get caught up in the panic. Maybe step back from 0:01:15.000 --> 0:01:18.160 what's going on and let them dost settle or let 0:01:18.200 --> 0:01:22.240 the markets settle down before you start making any investment decisions. 0:01:22.280 --> 0:01:24.840 There is a somewhat bright side of this, if you 0:01:24.880 --> 0:01:27.839 can see anything bright in this, and that is we've 0:01:27.840 --> 0:01:29.920 gone from a level at least as I do the 0:01:30.000 --> 0:01:34.240 numbers of being meaningfully overvalued, to being let's say a 0:01:34.240 --> 0:01:38.040 little bit overvalued but not as much overvalued. In other words, 0:01:38.120 --> 0:01:42.240 this could have an opportunity, but it's it's not here yet. 0:01:42.440 --> 0:01:45.280 So the main thing is don't get caught up in it, 0:01:45.360 --> 0:01:48.520 and don't panic. It's not here yet. When do you 0:01:48.560 --> 0:01:52.080 decide to buy the dip? That's really a good question. 0:01:52.160 --> 0:01:55.640 I I think you buy the dip when the valuations 0:01:55.680 --> 0:01:58.320 look a little bit better. You know, we started the 0:01:58.400 --> 0:02:01.600 day to put some numbers on a Lisa. As I 0:02:01.720 --> 0:02:05.600 do the numbers five percent overvalued or above the level 0:02:05.680 --> 0:02:08.200 we should average in the current quarter. You know, this 0:02:08.280 --> 0:02:11.120 is kind of fun with numbers. We've come down to 0:02:11.200 --> 0:02:13.600 where we're still a little bit over value three point 0:02:13.760 --> 0:02:17.080 six percent. Um I think you wait a couple more days. 0:02:17.120 --> 0:02:19.760 If we got down to our level of say even 0:02:19.840 --> 0:02:24.280 being fairly valued or one percent one percent overvalued, I 0:02:24.560 --> 0:02:28.520 start to buy, start to buy, maybe buy some some things. 0:02:28.639 --> 0:02:30.920 Keep in mind, little just just how much further do 0:02:30.919 --> 0:02:33.200 we have to go to get to that point? Well, 0:02:33.240 --> 0:02:34.840 you know, and as I say, you've got to go 0:02:34.960 --> 0:02:38.040 down another three three to five percent in my view, 0:02:38.120 --> 0:02:41.600 three to five in in the either you can measure 0:02:41.600 --> 0:02:43.480 it by the SMP or the down. If you went 0:02:43.520 --> 0:02:46.560 down that much, I think then you could probably start 0:02:46.600 --> 0:02:49.519 to start to buy. Well, what are some areas that 0:02:49.600 --> 0:02:53.160 you would be buying? Uh, you know, when this market 0:02:53.160 --> 0:02:55.359 does set it out, or if we do get that pullback, 0:02:55.400 --> 0:02:58.600 you're suggesting, well, that's great, that that's a great question. 0:02:58.680 --> 0:03:01.840 Because um, I haven't been very constructive or positive on 0:03:01.880 --> 0:03:04.440 the markets. I've been saying, you know, the markets are 0:03:04.440 --> 0:03:06.839 not going to have a particularly good year, especially after 0:03:06.880 --> 0:03:09.760 what we had in two thousand and nineteen. So I've 0:03:09.760 --> 0:03:12.400 been trying to tell investors of what we've been doing 0:03:12.560 --> 0:03:15.080 is to add a little defense to portfolios and doing 0:03:15.120 --> 0:03:18.679 things like making sure you buy large capitalization stocks, add 0:03:18.720 --> 0:03:22.440 some defense by buying utilities and and consumer staples. Make 0:03:22.440 --> 0:03:24.840 sure you buy some value stocks. I'm not saying load up. 0:03:24.880 --> 0:03:27.960 I'm not saying reduce your allocation to equities. But I'm 0:03:28.000 --> 0:03:30.760 saying in two thousand twenties going to be a lot 0:03:30.800 --> 0:03:33.560 more difficult a year. You can see that very clearly 0:03:34.080 --> 0:03:37.240 than two thousand nineteen. So I'm saying, add a little 0:03:37.280 --> 0:03:41.440 defense to portfolios. Remember, this has been an extraordinarily long cycle, 0:03:41.840 --> 0:03:45.400 the longest ball market in history, the longest expansion in history. 0:03:45.760 --> 0:03:48.680 Common sense alone says, look at trees, don't grow to 0:03:48.800 --> 0:03:52.160 the sky. You might add a little defense to portfolios. 0:03:52.440 --> 0:03:55.160 Is it's not time to go into the bunkers. It's 0:03:55.240 --> 0:03:58.040 not not time to take too much risk off the table. 0:03:58.480 --> 0:04:01.200 But you have to watch very closely when when you're 0:04:01.320 --> 0:04:04.120 you're a record, When you've got these records staring you 0:04:04.120 --> 0:04:06.720 in the face. On the flip side, what would you 0:04:06.760 --> 0:04:08.840 have to see with respect to the spread of the 0:04:08.840 --> 0:04:11.800 coronavirus and the subsequence slow down on the Chinese and 0:04:11.920 --> 0:04:16.200 other related economies To change your view and become even 0:04:16.240 --> 0:04:19.360 more pessimistic. Yeah, that's a great question. I'm not sure 0:04:19.360 --> 0:04:21.120 what it would take, but I think it would probably 0:04:21.120 --> 0:04:23.360 be you have to watch the news, and it's gonna 0:04:23.440 --> 0:04:26.839 be it's not going to be something you can easily quantify, 0:04:26.880 --> 0:04:29.039 and the news that you really want to watch is 0:04:29.080 --> 0:04:32.400 what's going on to China. You know, the Chinese economy 0:04:32.480 --> 0:04:34.679 is going to slow this year six point one percent 0:04:34.800 --> 0:04:38.000 down to five point eight percent. If we've got numbers 0:04:38.120 --> 0:04:41.400 or forecasts, shall we say from sensible plate people, that 0:04:41.560 --> 0:04:44.360 looks like five and a half percent. Uh, then we're 0:04:44.400 --> 0:04:48.719 talking about the impact of this, uh, the coronavirus being 0:04:48.720 --> 0:04:52.200 a lot more significant than we had previously estimated our forecasts. 0:04:52.240 --> 0:04:55.000 And then we've got to reduce our forecast for the 0:04:55.040 --> 0:04:58.400 global economy or forecasts or not only China, our forecast 0:04:58.440 --> 0:05:01.400 for the US. Remember China's an important export desition, that 0:05:01.520 --> 0:05:04.279 destination for the U S. And and then we're gonna 0:05:04.279 --> 0:05:07.000 bring earnings estimates for the SMP down, and that's when 0:05:07.279 --> 0:05:09.400 that's when we're gonna have some real problems I think 0:05:09.440 --> 0:05:12.279 in the markets. I'm hoping that doesn't happen, but nevertheless, 0:05:12.360 --> 0:05:14.200 that's what you gotta watch. You gotta watch what's going 0:05:14.279 --> 0:05:17.880 to be the impact on China, an important export destination 0:05:17.960 --> 0:05:20.800 for the U S. You you mentioned earnings were maybe 0:05:20.800 --> 0:05:22.839 a third of the way through this earning season. Any 0:05:22.839 --> 0:05:26.320 takeaways for you so far. Yeah, it's a puzzling thing. 0:05:26.360 --> 0:05:29.080 And it's been puzzling for every earning season we've seen 0:05:29.120 --> 0:05:31.159 for the last four or five earning season. And that 0:05:31.360 --> 0:05:34.560 is companies are coming in with better than expected earnings 0:05:34.640 --> 0:05:36.440 that's not as good as we sail for the third 0:05:36.480 --> 0:05:38.920 quarter that we saw in the fourth quarter, were still 0:05:38.960 --> 0:05:42.000 have seventy percent of the companies of giving US earnings 0:05:42.000 --> 0:05:44.680 that are above expectations. But at the same time that 0:05:44.720 --> 0:05:47.680 we're getting that for the fourth quarter of two thousand 0:05:47.680 --> 0:05:52.360 and nineteen, earnings expectations are forecasts by myself and others 0:05:52.760 --> 0:05:55.559 for two thousand and twenty keep coming down. We worried 0:05:55.600 --> 0:05:58.279 about ten percent at the start of the fourth quarter. 0:05:58.320 --> 0:06:01.279 We're now down pretty close to eight percent eight point three. 0:06:02.160 --> 0:06:05.960 So estimates for two thousand twenty keep coming down. And 0:06:05.960 --> 0:06:08.680 and so I'm happy about what we saw for to 0:06:08.680 --> 0:06:11.560 to the fourth quarter. I'm not really happy about what 0:06:11.600 --> 0:06:14.360 I'm seeing lying ahead for two thousand and twenty, and 0:06:14.400 --> 0:06:18.720 that makes my concerns are worries about valuation even deeper. 0:06:19.200 --> 0:06:21.080 Hugh Johnson, thank you so much for being with us. 0:06:21.160 --> 0:06:24.680 Hugh Johnson, Chairman and Chief Investment Officer of Hugh Johnson Advisors, 0:06:24.960 --> 0:06:27.160 over say one and a half billion dollars from Albany, 0:06:27.200 --> 0:06:39.599 New York. Of course, what's driving the risk off field 0:06:39.600 --> 0:06:42.039 as the coronavirus which has been spreading and some of 0:06:42.080 --> 0:06:45.560 the measures that China has taken to prevent further spread. 0:06:45.640 --> 0:06:48.400 Joining us who has been weighing in all more day 0:06:48.640 --> 0:06:51.080 and all week last week, Drew Armstrong, team leader for 0:06:51.120 --> 0:06:53.479 you as healthcare Bloomberg. Drew, can you just bring us 0:06:53.600 --> 0:06:55.800 up to date? What is the latest in terms of 0:06:55.839 --> 0:06:58.560 the spread and the efforts to contain the virus at 0:06:58.560 --> 0:07:00.560 this point? Well, I mean, I think the biggest things 0:07:00.600 --> 0:07:03.359 we're watching right now are kind of looking out for 0:07:03.480 --> 0:07:06.000 new global cases. We do know CDC is going to 0:07:06.080 --> 0:07:09.280 brief reporters a little bit later this morning, and we 0:07:09.320 --> 0:07:11.560 may get some updates on exactly what the situation is 0:07:11.600 --> 0:07:13.920 in the U S where we have five confirmed cases 0:07:13.920 --> 0:07:16.960 but several dozen people who have been under observation or 0:07:17.000 --> 0:07:20.680 in isolation. You know, approaching three thousand cases in China. 0:07:21.040 --> 0:07:23.680 Accounts there continue to rise. I mean, we've seen several 0:07:23.720 --> 0:07:26.040 hundred more cases at it each day. And I think 0:07:26.080 --> 0:07:28.840 the biggest thing everybody is looking at is do things 0:07:28.840 --> 0:07:32.000 in China accelerate, um and continue to grow in a 0:07:32.040 --> 0:07:35.320 meaningful way. Meaning you've got kind of sustained ongoing transmission 0:07:35.360 --> 0:07:37.000 and a lot of the lockdowns that they've been doing 0:07:37.000 --> 0:07:40.400 there aren't working, which is a possibility. Um. And do 0:07:40.520 --> 0:07:43.560 we see kind of ongoing or sorry, do we see 0:07:43.760 --> 0:07:47.280 new transmission happening outside of China which would really put 0:07:47.320 --> 0:07:50.080 this in a new phase. So Drew, just give us 0:07:50.080 --> 0:07:54.080 some sense of context maybe relative to say the stars 0:07:54.400 --> 0:07:57.760 of virus that of many years of several years ago, um, 0:07:58.000 --> 0:08:00.440 where we in scope related to that? You know, I 0:08:00.480 --> 0:08:02.640 think there's a lot of similarities, and people do make 0:08:02.680 --> 0:08:05.760 that comparison. I mean, there's similar types of viruses. Both 0:08:05.800 --> 0:08:08.640 are coronaviruses. They appear to come from some kind of 0:08:08.680 --> 0:08:13.800 animal reservoir um in China, and both are respiratory illnesses 0:08:13.840 --> 0:08:16.800 that can be deadly in the wrong type of patient. 0:08:16.800 --> 0:08:19.480 You're looking at people who are maybe a little bit older, 0:08:19.560 --> 0:08:22.160 maybe a little bit sicker, Uh, those folks are in 0:08:22.240 --> 0:08:25.520 general more vulnerable to to any type of illness, whether 0:08:25.520 --> 0:08:28.160 it be the flu um or one of these more 0:08:28.240 --> 0:08:32.000 novel novel pathogens that we've been seeing. And so you know, 0:08:32.080 --> 0:08:34.600 you're seeing the same types of restrictions on trade, the 0:08:34.640 --> 0:08:37.040 same same types of economic worries that we're having here. 0:08:37.160 --> 0:08:39.000 Stars was a lot bigger than this was, but it's 0:08:39.120 --> 0:08:42.640 very early days. I mean, that was a long running epidemic. 0:08:42.679 --> 0:08:44.080 I think one of the things you've seen that is 0:08:44.120 --> 0:08:47.679 different from Stars is that public health authorities around the 0:08:47.679 --> 0:08:51.480 globe are increasingly sophisticated about how they respond as China 0:08:51.520 --> 0:08:54.800 in particulars increasingly sophisticated. China is a very different place 0:08:54.800 --> 0:08:57.040 in two thousand two, two thousand three from where it 0:08:57.080 --> 0:08:59.840 is now. Some of the same practices, um, you know, 0:09:00.040 --> 0:09:02.640 we were talking about these wet markets and things like that, 0:09:02.760 --> 0:09:04.800 or you know, it's coming from an animal reservoir, maybe 0:09:04.800 --> 0:09:06.960 in baths or something. Those are still the type of 0:09:06.960 --> 0:09:09.360 things you you worry about. The doocey is similar, but 0:09:09.600 --> 0:09:12.320 China is a really different country than you know, fifteen 0:09:12.400 --> 0:09:15.080 or twenty years ago. Yeah, although there are issues in 0:09:15.200 --> 0:09:18.160 terms of not having the right hospital beds, enough hospitals. 0:09:18.200 --> 0:09:20.720 They're building hospitals currently as we speak to try to 0:09:20.720 --> 0:09:24.880 meet the demand. Also just some basic supplies, the idea 0:09:24.960 --> 0:09:28.920 of gowns and protective equipment for the medical workers to 0:09:29.000 --> 0:09:32.040 take care of the patients. How is that kind of 0:09:33.040 --> 0:09:36.040 I guess illuminating issues within China that are going to 0:09:36.160 --> 0:09:39.280 make this harder to to sort of stave off, even 0:09:39.360 --> 0:09:42.280 with the quarantine that's currently in place. Yeah, anytime you 0:09:42.360 --> 0:09:44.960 have a widespread outbreak, one of the big things that 0:09:45.000 --> 0:09:47.840 you worry about is isolation and containment. This is something 0:09:47.840 --> 0:09:49.760 that public health or experts are going to talk. If 0:09:49.760 --> 0:09:51.679 you have people who are contagious, you don't want them 0:09:51.760 --> 0:09:54.600 around other people, And especially when you've got a virus 0:09:54.640 --> 0:09:57.040 that is this new and has some of these scary 0:09:57.120 --> 0:10:00.679 potential uh consequences to it, you need the hospital beds 0:10:00.720 --> 0:10:04.040 and you need isolation units. When you're dealing with thousands 0:10:04.040 --> 0:10:06.680 of new cases, No city around the globe is going 0:10:06.720 --> 0:10:08.439 to have the capacity to say, hey, we need to 0:10:08.480 --> 0:10:10.760 put three thousand people in isolation, and we need to 0:10:10.840 --> 0:10:12.719 do it tomorrow. So you've got to build. And that's 0:10:12.720 --> 0:10:14.760 why they're putting together a hospital to deal with this. 0:10:15.000 --> 0:10:18.000 They did the same thing with Stars during that outbreak. 0:10:18.080 --> 0:10:20.080 So some of this is saying we just need to 0:10:20.080 --> 0:10:22.200 get the facilities in place where we can do the 0:10:22.240 --> 0:10:25.959 basic fundamental public health medical work to get these cases 0:10:26.000 --> 0:10:29.320 out of the population and stop them from potentially transmitting. 0:10:29.480 --> 0:10:31.040 That is going to be made tricky by this thing 0:10:31.080 --> 0:10:33.440 because it has a long incubation period. We don't know 0:10:33.840 --> 0:10:37.360 are people with really mild symptoms spreading it around without 0:10:37.360 --> 0:10:40.240 necessarily knowing they get sick. There's some complicating factors here 0:10:40.240 --> 0:10:42.400 that I think the experts dealing with that are really 0:10:42.400 --> 0:10:44.680 still trying to get their hands on it real quickly. 0:10:44.720 --> 0:10:47.800 How did the Stars issue kind of take care of 0:10:47.840 --> 0:10:51.000 itself or how did that play out? Every almost every 0:10:51.000 --> 0:10:53.400 single outbreak like this, it comes down to good public 0:10:53.400 --> 0:10:56.760 health practices. I mean, you get like a vaccine that 0:10:56.800 --> 0:10:59.120 came out for Stars. Vaccines tend to take you know 0:10:59.280 --> 0:11:01.840 when when when you talk about drugs you need months 0:11:01.960 --> 0:11:04.880 or years. Often they get developed well after an outbreak 0:11:04.920 --> 0:11:06.440 has ended. You know, we have a we have a 0:11:06.480 --> 0:11:09.679 bowl of vaccine now, but we also started developing it 0:11:10.120 --> 0:11:12.640 um in the beginning of the first outbreak in the 0:11:12.640 --> 0:11:15.760 two thousand tents, and we only just now have it Okay, 0:11:16.160 --> 0:11:18.480 Drew Armstrong, thanks so much for that update. We'll look 0:11:18.480 --> 0:11:22.319 for the CDC briefing the reporters eleven thirty Wall Street Time, 0:11:22.360 --> 0:11:25.959 Drew Armstrong, team leader for US Healthcare busy reporter as 0:11:26.000 --> 0:11:30.840 the Healthcare team is as a track this coronavirus. Drew Armstrong, 0:11:30.880 --> 0:11:33.760 Bloomberg News. Joinings here on a Bloomberg Interactive broker studio. 0:11:43.160 --> 0:11:45.959 But we often hear the phrase think outside the box. 0:11:46.000 --> 0:11:48.400 But how about thinking outside the building. That's what our 0:11:48.440 --> 0:11:51.640 next guest suggests that we do. Roosevelt Moss Cantor. She's 0:11:51.679 --> 0:11:55.160 the R. Bacal Professor of Business Administration at the Harvard 0:11:55.160 --> 0:11:58.439 Business School, also Chair and director of Harvard's Advanced Leadership Initiative. 0:11:58.960 --> 0:12:01.599 She joins us here on our bloom Interactive broker studios. 0:12:01.640 --> 0:12:03.440 But thanks so much for joining us. We appreciate you 0:12:03.520 --> 0:12:06.480 coming here. Talk to us about your book, Think Outside 0:12:06.520 --> 0:12:09.520 the Building. How advanced leaders can change the world one 0:12:09.640 --> 0:12:13.480 smart innovation at a time. That's the title of your book. 0:12:13.679 --> 0:12:15.840 What do you what's the key takeaway there? So, if 0:12:15.880 --> 0:12:20.839 you want innovation, you can't stay stuck within today's structures, 0:12:21.080 --> 0:12:25.200 today's assumptions, today's thinking. And if you think about it. 0:12:25.240 --> 0:12:28.599 I mean, here we are, we're in a highly digital 0:12:29.120 --> 0:12:33.360 radio program. Um how I mean the news is no 0:12:33.440 --> 0:12:37.960 longer the newspaper. Education isn't the school of the classroom. 0:12:38.000 --> 0:12:40.760 Health is not the hospital. It's a lot of stuff 0:12:40.800 --> 0:12:44.160 that goes on outside and around it. And we're fixing 0:12:44.200 --> 0:12:48.520 health by fixing nutrition for example. UM. So, if you're 0:12:48.520 --> 0:12:54.680 constrained by your job, the particular company you work for, 0:12:54.800 --> 0:12:58.200 if you're constrained by conventional thinking, you never can do 0:12:58.280 --> 0:13:01.760 anything novel or innovative. So have to get out. Can 0:13:01.800 --> 0:13:04.559 you give us an example of somebody who did this 0:13:05.440 --> 0:13:09.600 and took a risk and became incredibly successful in in 0:13:09.600 --> 0:13:12.760 their sort of innovations. Well, in many ways, many most 0:13:12.880 --> 0:13:15.400 entrepreneurs do some of that. I mean they see that 0:13:15.440 --> 0:13:19.840 there's something totally different possible because they see the gaps 0:13:20.000 --> 0:13:23.600 they um so Uber, even though it had a very 0:13:23.679 --> 0:13:27.400 checkered history in the beginning in terms of of regulators 0:13:27.480 --> 0:13:29.600 and lots of other things. I mean, that was seeing 0:13:30.080 --> 0:13:34.160 that the conventional taxi industry was not meeting all the 0:13:34.160 --> 0:13:37.440 needs of people. You you're out there watching on the streets, 0:13:37.520 --> 0:13:41.559 it's not hard to see. But if you're stuck within um, 0:13:41.960 --> 0:13:44.640 an existing corporation, you might not see that. And in 0:13:44.720 --> 0:13:47.320 my book, I tell the example the former president of 0:13:47.360 --> 0:13:51.800 Trader Joe's who has an entirely new retail concept now 0:13:51.800 --> 0:13:56.240 to feed people in food deserts and inner cities by 0:13:56.360 --> 0:14:01.400 um using food that would otherwise be wasted. And that 0:14:01.480 --> 0:14:03.960 wasn't his first idea. Took him a long time to 0:14:04.040 --> 0:14:09.360 get out of thinking traditional grocery store UM supply chains, 0:14:09.559 --> 0:14:12.560 and now he has something that's doing very well in 0:14:12.640 --> 0:14:15.600 Boston and is going to spread around the country. I'm 0:14:15.600 --> 0:14:19.600 struck by the timing of your book. It comes at 0:14:19.640 --> 0:14:22.760 a time of incredible money going into venture capital funds, 0:14:22.800 --> 0:14:26.720 incredible amounts of money going into Silicon Valley, in particular, 0:14:26.840 --> 0:14:30.520 with unicorns being created with their valuations above a billion 0:14:30.520 --> 0:14:37.440 dollars regularly. I'm wondering, when companies get big quick, does 0:14:37.520 --> 0:14:41.560 that stifle innovation because people have to stay within the 0:14:41.640 --> 0:14:44.720 building and keep it going and try to generate profits 0:14:45.200 --> 0:14:49.240 rather than foresee the next sort of disruptive trend to 0:14:49.320 --> 0:14:53.080 innovate around it. Certainly makes it easier for people to 0:14:53.120 --> 0:14:56.880 get stuck. If you're growing fast with one formula, and 0:14:56.920 --> 0:14:59.760 if you depart from it, you might undercut that formula. 0:15:00.160 --> 0:15:04.520 But then look at Amazon, which started out with books 0:15:04.520 --> 0:15:08.680 and has managed to expand to practically everything else, including 0:15:08.760 --> 0:15:12.840 selling its own computer system. That's amazing that Amazon Web 0:15:12.880 --> 0:15:16.600 Services is the biggest deal going on the cloud. What 0:15:16.720 --> 0:15:20.160 does that have to do with selling books online? How 0:15:20.160 --> 0:15:25.160 about some more traditional industries, whether it's automni automobiles, are 0:15:25.200 --> 0:15:28.600 just manufacturing or you know kind of how are some 0:15:28.640 --> 0:15:32.080 of those companies doing as it relates to innovation. Well, so, 0:15:32.240 --> 0:15:34.200 first of all, I had there was a very interesting 0:15:34.280 --> 0:15:37.720 comment at a conference UM that I had pulled together 0:15:37.760 --> 0:15:40.920 a few years ago and had invited Mary Barra from 0:15:40.960 --> 0:15:44.400 General Motors to talk, and we were talking about the 0:15:44.400 --> 0:15:47.880 future of transportation and she said, you know, when she 0:15:48.600 --> 0:15:52.360 was starting out in marketing that UM, the cell phone 0:15:52.480 --> 0:15:55.680 was first called the car phone because that was the 0:15:55.720 --> 0:15:58.480 only place people had carverone. She said, boy, did they 0:15:58.520 --> 0:16:03.080 miss a bet. And now the car itself is a computer. 0:16:03.560 --> 0:16:06.880 The metal is the least value added part of the car. 0:16:07.640 --> 0:16:11.320 And that's interesting. We don't even know yet how all 0:16:11.400 --> 0:16:14.120 of that's going to play out, and how that car 0:16:14.280 --> 0:16:16.800 is going to talk to other cars, to the billboards, 0:16:16.840 --> 0:16:19.720 to the streets. Amazon, I want to go back to 0:16:19.760 --> 0:16:22.720 what you were saying, this idea that they've managed to 0:16:22.760 --> 0:16:26.480 innovate repeatedly to dominate a whole host of different industries. 0:16:27.520 --> 0:16:32.960 How does a company create a culture of innovation? I 0:16:33.040 --> 0:16:35.640 think in the Amazon case, there are two different kinds 0:16:35.640 --> 0:16:38.120 of cultures of innovation. One is you have a founder 0:16:38.160 --> 0:16:40.840 that wants to dominate the world. And there was a 0:16:40.840 --> 0:16:44.800 time in Silicon Value where they all said total world domination. 0:16:45.280 --> 0:16:51.240 Jeff Bezos said Amazon meant it because he was he 0:16:51.400 --> 0:16:55.600 was always envisioning things bigger um. And so partly the 0:16:55.640 --> 0:16:58.160 culture of innovation comes from a founder who has a 0:16:58.200 --> 0:17:00.680 big dream and is not going to let go of 0:17:00.720 --> 0:17:04.320 that big dream for the trivia of operations and turn 0:17:04.359 --> 0:17:07.439 operations over to other people. Ellen Musk is much the 0:17:07.520 --> 0:17:12.040 same way. UM. So there's another kind of culture of innovation, 0:17:12.080 --> 0:17:14.800 and I talked more about that in my book, which 0:17:14.840 --> 0:17:18.119 is a bottom's up culture of innovation, where you give 0:17:18.200 --> 0:17:22.520 people the sense of importance, the freedom to actually leave 0:17:22.560 --> 0:17:25.080 the building and come back with ideas. I mean, I 0:17:25.119 --> 0:17:28.560 have an example of a law firm where there was 0:17:28.960 --> 0:17:30.960 a young man in the law firm who got the 0:17:31.040 --> 0:17:34.560 law firm to take seats in a tech incubator a 0:17:34.640 --> 0:17:37.320 law firm, and they weren't there to sell legal services. 0:17:37.600 --> 0:17:40.240 They were there to soak up a culture of innovation, 0:17:40.560 --> 0:17:43.560 and that law firm is one of the first with 0:17:43.680 --> 0:17:49.800 digital wills and other ways to use technology on routine services. 0:17:50.560 --> 0:17:54.960 So I think that if you empower the workforce and 0:17:55.040 --> 0:17:58.840 also again get them outside of the conventional, there's only 0:17:58.880 --> 0:18:02.399 one answer, Rosabeth, what's the role of government in terms 0:18:02.400 --> 0:18:05.280 of fostering innovation? You could say Silicon Valley, the U. S. 0:18:05.320 --> 0:18:08.240 Tech business has been so successful because the government has 0:18:08.240 --> 0:18:11.479 taken a very light hand to regulation. That was after 0:18:11.600 --> 0:18:14.119 they were successful. I mean, you know, they like to 0:18:14.160 --> 0:18:16.520 say government had nothing to do with it, They shouldn't 0:18:16.560 --> 0:18:18.479 have anything to do with it. Go away, And that 0:18:18.560 --> 0:18:21.520 was the uberstance for a long time that got them 0:18:21.560 --> 0:18:24.920 banned in many countries around the world. But in fact 0:18:25.000 --> 0:18:27.800 government has a big role because Silicon Valley was the 0:18:27.840 --> 0:18:31.760 result of the defense industry and defense spending, and so 0:18:32.040 --> 0:18:36.600 was um Boston's High Tech Corridor in Austin, Texas. Defense. 0:18:36.680 --> 0:18:40.520 That's government. Then there is healthcare, which has so much 0:18:40.560 --> 0:18:44.320 government spending. Boston is now the one the healthcare life 0:18:44.320 --> 0:18:46.639 science as capital of the world. A lot of that 0:18:46.760 --> 0:18:50.080 was federal brands, So we don't write off government. It's 0:18:50.119 --> 0:18:53.840 the regulation later I think we might worry about, But 0:18:54.040 --> 0:18:57.840 initially government is a great seed fund. Professor, thank you 0:18:57.880 --> 0:19:01.439 so much, really really interesting insights and terrific book. Think 0:19:01.480 --> 0:19:04.440 Outside the Building, How Advanced leaders Can change the world, 0:19:04.560 --> 0:19:08.520 one smart innovation at a time. Professor Roosabet Moss Cantor 0:19:08.720 --> 0:19:12.399 of Harvard, the Artbical Professor of Business Administration at Harvard 0:19:12.400 --> 0:19:14.560 Business School and also the Chair and director of Harvard's 0:19:14.600 --> 0:19:18.639 Advanced Leadership Initiative. Joining us here in our interactive Broker 0:19:18.680 --> 0:19:21.399 studio is a really important discussion at a time of 0:19:21.480 --> 0:19:23.920 unprecedented amount of money going into venture capital, and a 0:19:24.359 --> 0:19:27.240 question about how to sort of get to the next 0:19:27.400 --> 0:19:30.040 level when it comes to tech advancement, when it comes 0:19:30.040 --> 0:19:33.240 to countering UH climate change, a whole host of other things. 0:19:33.280 --> 0:19:37.080 How do you set the stage to even understand what 0:19:37.359 --> 0:19:50.440 might be the needed things going forward. Paul, we've talked 0:19:50.440 --> 0:19:52.679 a lot about the Everything rally and how that just 0:19:52.680 --> 0:19:54.359 has been a melt up. Well, there hasn't been a 0:19:54.400 --> 0:19:56.639 melt up when it comes to the shares of Wells, 0:19:56.680 --> 0:20:00.359 Fargo and Boeing Boeing in particular, absolutely slammed the past 0:20:00.359 --> 0:20:03.639 twelve months, shares down more than ten percent, kind of shocking. 0:20:03.680 --> 0:20:06.639 It's not more. Wells Fargo shares a completely little twelve 0:20:06.640 --> 0:20:09.080 month trailing period at two point four percent of a 0:20:09.119 --> 0:20:13.000 decline including dividends. And the question that's emerging is how 0:20:13.080 --> 0:20:17.080 much is this a failure of corporate governance and what 0:20:17.160 --> 0:20:19.160 does that say going forward about what will it take 0:20:19.200 --> 0:20:21.800 to change both some of the issues and these companies 0:20:21.880 --> 0:20:24.280 as well as others that might be facing similar issues. 0:20:24.359 --> 0:20:26.919 Richard Chambers joining us now President chief executive Officer of 0:20:26.960 --> 0:20:31.440 the Institute for Internal Auditors the I I A uh, 0:20:31.480 --> 0:20:34.320 and really I want to give a sense how much 0:20:34.600 --> 0:20:37.720 was a failure and corporate governance the main driver behind 0:20:37.880 --> 0:20:40.399 both of the scandals that we saw at Boeing and 0:20:40.440 --> 0:20:43.000 Wells Fargo. Well, first of all, thank you for having me, 0:20:43.040 --> 0:20:45.600 and it's great to be back. Uh. You know, corporate 0:20:45.640 --> 0:20:51.080 governance is is an ongoing challenge we have. The i A, 0:20:51.160 --> 0:20:54.439 the Insued Internal Auditors has been surveying around this and 0:20:54.480 --> 0:20:57.119 doing a good bit of analysis over the last few months. 0:20:57.600 --> 0:21:01.240 And the issues that we see oath that Wells Fargo 0:21:02.160 --> 0:21:06.280 and it Boeing are not surprising given the kind of 0:21:06.320 --> 0:21:10.199 results that our analysis has has disclosed. In fact, the 0:21:10.280 --> 0:21:14.240 eight guiding principles of corporate governance that we have identified 0:21:14.320 --> 0:21:17.240 jointly with our with our partner at the Neil Center 0:21:17.240 --> 0:21:20.320 of Corporate Governance at Tennessee University of Tennessee. Those eight 0:21:20.320 --> 0:21:25.400 guiding principles we surveyed around those and and corporate governance 0:21:25.440 --> 0:21:28.320 overall came out in this country at a at a 0:21:28.359 --> 0:21:31.679 barely a passing grade at a C plus um. We 0:21:31.760 --> 0:21:34.560 think there is so much yet to be done. But 0:21:34.640 --> 0:21:37.320 when you start to look at these two companies in particular, 0:21:37.400 --> 0:21:40.320 there there's certainly are a lot of questions about culture 0:21:40.680 --> 0:21:46.080 in the companies, and yet boards have on an overly 0:21:46.119 --> 0:21:50.919 optimistic assessment of the culture and their organizations. Another survey 0:21:50.960 --> 0:21:53.760 we did said that boards think that the company is 0:21:53.800 --> 0:21:57.600